tax & coffee

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  1. Thanks David. What would be a more appropriate term to use in lieu of "accrued" that is consistent with my fact pattern and in conformance with industry standards? This is how our plan language reads: "Each annuity is stated as an annual amount, one twelfth of which, fixed at the nearest dollar, accrues monthly (except that an annuity accrues over any portion of a month after the commencing date of such annuity but before the 1st day of the next month and is payable for such month, to include the month of death of the annuitant, in an amount prorated in a manner to be determined by ......) and is payable on the 1st business day of the month after it accrues."
  2. In a governmental 401a defined benefit plan, each monthly annuity is paid in the month after it accrues (i.e. in February the member is paid the annuity amount accrued in January). When a member dies, say 15 days into a month, his or her designated beneficiary is entitled to a one-time, lump sum distribution of the deceased member's prorated annuity amount (i.e. those 15 days in the month of the member's death that they were alive and accrued an annuity amount). Is this prorated annuity amount paid upon the member's death considered an eligible rollover distribution or a nonperiodic payment? We are trying to determine whether we should apply the 20% federal withholding on ERDs or the 10% federal withholding on nonperiodic payments with an option for no withholding.
  3. In a governmental 401a defined benefit plan, each monthly annuity is paid in the month after it accrues (i.e. in February the member is paid the annuity amount accrued in January). When a member dies, say 15 days into a month, his or her designated beneficiary is entitled to a one-time, lump sum distribution of the deceased member's prorated annuity amount (i.e. those 15 days in the month of the member's death that they were alive and accrued an annuity amount). Is this prorated annuity amount paid upon the member's death considered an eligible rollover distribution or a nonperiodic payment? We are trying to determine whether we should apply the 20% federal withholding on ERDs or the 10% federal withholding on nonperiodic payments with an option for no withholding.
  4. How would the pro rata rule apply in a scenario where the only amounts eligible to be rolled out are after-tax monies? The pre-tax earnings remain in the Fund due to the employee lacking sufficient creditable service to vest in employer contributions and any attributable earnings on in the Fund.
  5. Mandatory employee contributions to a governmental 401(a) DB are after-tax. If an employee separates from service prior to becoming fully vested, they may elect to take an ERD of after-tax employee contributions (no employer contributions or earnings). Is the employee permitted to initiate a direct rollover to another eligible plan or IRA of these solely after-tax employee contributions?
  6. Thank you Carol. This is very helpful.
  7. I am familiar with governmental plans using a PSP for matching employer contributions based on deferrals to a 457(b), however, this is my first time seeing it done with a MPP. The money purchase plan has a fixed employer contribution 10% of earnings (no mandatory participant contributions) for the City Manager and ALL OTHER employees receive a variable employer match up to 5% of earnings based on their contribution to a 457(b). How is such a contribution formula fixed or definitely determinable?
  8. Is this also permissible in a money purchase plan? For example, an employer elects to have a variable employer match into a 401(a) money purchase plan based upon employee deferrals to a 457(b).